Financial DD is important to:
• Confirm an acquisition strategy and whether the target fits that strategy;
• Verify that the target’s assets and liabilities are as expected;
• Confirm the key income drivers of the target;
• Evaluate opportunities for improvement post acquisition;
• Provide opportunities to re-negotiate purchase price if unexpected information arises;
• Ensure appropriate warranties are included
• Understand if company has any significant debt
Financial DD is important because it should provide a potential buyer with comfort that they know what they are getting into. It should help you establish the true value or cost of an acquisition. It should stop post acquisition. It should highlight risks and ways to mitigate them.
